Central bank moving to boost market

The Bank of Thailand (BOT) plans to allow its primary dealers to hold an exclusive right to participate in auctions for government bonds.

Pongpen Ruengvirayudh, senior director of the central bank's Financial Markets Operations Group, yesterday said the BOT would first seek the Finance Ministry's agreement to the arrangement.

She said the move would encourage the primary dealers to be active market-makers in the bond market, similar to the practice in other countries. It will also enable the primary dealers to hold a higher number of the bonds, bolstering transactions in the secondary bond market.

"We're considering giving them the right to be a single group [able to take part] in [government] bond bidding," she said. "We have not yet decided whether to adopt the same practice in the case of auctioning BOT bonds."

As in government-bond auctions, primary dealers as well as other financial institutions are now able to bid for BOT bonds.

Pongpen said the primary dealers would receive the special rights only under certain conditions, such as being required to bid for not less than a certain percentage of the issued bonds.

Thai Bond Market Association president Nattapol Chavalitcheevin earlier said market-makers in the bond markets had so far not played an active role, because they did not have enough bonds in their hands. He blamed the present system of allowing other institutional investors to joint in auctions for government bonds for the low level of activity from the market-makers.

Pongpen said if other institutional investors were not allowed to bid directly for government bonds, they would have to place their bids through the primary dealers. However, a small group of institutional investors may be allowed to join the auctions for a tiny number of bonds.

At present, primary dealers have the right to borrow a limited number of bonds from the central bank with a promise to return them. However, the dealers inevitably carry the risk of having to buy the bonds at higher prices, in order to give them back.

The BOT's primary dealers are presently Bangkok Bank, Kasikornbank, Citibank, Deutsche Bank, Siam Commercial Bank, United Overseas Bank (Thai), Standard Chartered Bank (Thai), ABN-Amro Bank and HSBC.

Earlier, Nattapol also suggested the government reduce the maturity of its bonds, in order to increase the magnitude of each bond issue.